Protectionism Won't Heal Africa's Sick

Donating money to boost African access to essential drugs is a wonderful thing. But unless philanthropists insist on market principles in the continent's drug market, and until they apply necessary due diligence when cutting checks, their aid stands to be hijacked by governmental opportunism, incompetence and corruption.

So far, donors have focused almost exclusively on lowering drug prices to improve access. They have subsidized drugs, demanded lower prices from innovator companies, and have weakened patent law to increase generic competition. Many are now pushing for African production of medicines, but the result so far has been higher costs and probably inferior drugs. In addition, donors are repeatedly awarding large contracts to cheap but erratic suppliers, costing lives.

East Africa offers all too many examples. Tanzania imposes a 10% tariff on drug imports to protect local producers, but fails to measure the true costs in higher prices to patients. Kenya has numerous unproven producers, contributing to a vast local market--an astonishing 200 different antimalarial brands are on sale across Kenya. But most of these are not registered, and according to the government's own figures, at least 18% are substandard.

Uganda may have made even worse decisions. The government has invested tens of millions of dollars into Kampala-based Quality Chemical Industries Ltd, or QCIL, and holds a 22% stake in the company. QCIL was supposed to provide much-needed antimalarials and HIV antiretrovirals, but production is behind schedule and quality is uncertain. And given its small local market, QCIL may never be able to take advantage of economies of scale, so will always be outcompeted.

Worse, bungling begets scandal. Some weeks ago, when numerous Ugandan clinics had run out of HIV drugs, the country's ministry of health diverted $15 million, which had been earmarked by donors for purchasing antiretrovirals, to support QCIL and pay public health workers. Denmark's International Development Agency now wants an investigation into this unauthorized diversion of funds, which were supplied by the international community. This would be welcome, since Uganda's national procurement and distribution system recently admitted that 93% of the drugs it purchased did not reach intended recipients. This woeful outcome undoubtedly resulted in unnecessary death and suffering.

Meanwhile, QCIL is demanding a 15% tariff on foreign competitors, and an extended tax holiday, further cash injections, and guaranteed contracts for itself. Given the firm's political connections, notably its backing by Vice President Gilbert Bukenya, Kampala might soon be persuaded to give QCIL what it wants, to the detriment of Uganda's sick.

QCIL and protectionism are not Uganda's only drug problem. The country also suffers from an overzealous drive to cure on the cheap, as it copies Kenya's dreadful decision in August 2008 to award a public contract for an antimalarial drug to Ajanta Pharmaceuticals of India. At that time. Ajanta's antimalarial, Artefan, had not been approved by the World Health Organization, or WHO, yet Kenya still used $11m of Global Fund grant money to procure 7 million treatments from Ajanta – even though the public-private fund says it only buys proven, quality medicines. Ajanta had won the contract because it was roughly a third cheaper than the WHO-approved competitor products.

In December 2008, Ajanta finally delivered the drugs, but three months late, and less than a fifth of the total amount ordered. Some of the packages were also missing pills, rendering many of them useless.

As a result, the U.S. had to provide emergency supplies of other approved antimalarial drugs at considerable cost. Even so, stocks were low for many months. There is no doubt that Nairobi's decision to award the contract to Ajanta cost lives and money. Perhaps more worryingly, the Global Fund supported the move, against its own policy of only paying for WHO-approved products. Artefan was finally approved by the U.N. health organization late in 2008—more than three months after Nairobi approved the purchase. WHO earlier this year issued a notice of concern about the product, which it has since withdrawn. Still, other drug purchasers should have been wary.

But when it came time for Uganda to hold its tender earlier this year, Ajanta was once again the surprise provisional winner. This time its winning bid of some $18 million was only 3% cheaper than the competition, and was even increased afterwards by just over $100,000, against the rules of open tenders. Once again the Global Fund seems happy with the result, as does the Ugandan health minister. Both have been assured that the problem in Kenya was the fault of the Kenyans, not Ajanta.

While it is true that Kenya horribly mismanaged its allocations, Uganda was reckless to follow its lead. Right now Uganda has clinics without the requisite drugs, yet no date has been set for delivery of Ajanta's product. Will donors in Washington and beyond be asked again to bail out an African government due to sloppy tendering? And what is the Global Fund's role in all of this? The fund, like other donors, has a duty to ensure that the companies that win bids for its monies can actually deliver as promised. This shambles is costing the lives of countless Ugandans.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI.

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